UNITED STATES V. PALTZER AND BUCK – U.S. GOVERNMENT’S EFFORTS TO IMPLEMENT OVERSEAS BANKING DISCLOSURE COMING TO REALIZATION.

In 2008, a former employee of the Swiss global financial services institution, UBS, made a statement that the Swiss bank was actively helping U.S. Citizen Accountholders to evade US tax liability. This sparked the United States law called FATCA (Foreign Account Tax Compliance Act), which not only requires individuals to report their financial accounts held outside of the United States, but also compels foreign financial institutions to report to the Internal Revenue Service (IRS) about their American clients. Thus, Switzerland’s well-known banking secrecy is now compromised, at least for United States accountholders.

Now, a onetime Swiss tax lawyer’s confession that he was actively involved in helping US accountholders in hiding their dollars from the IRS for more than a decade may fuel further tension between United States and Switzerland in regards to the latter’s banking laws. Edgar Paltzer, a former lawyer for a firm based in Zurich, Niederer Kraft & Frey Ltd., is one of the key participants accused in the case. His lawyer, Thomas Ostrander, stated that he recently reached a deal with prosecutors in Manhattan, New York, to cooperate with the U.S. “without limitation”.

Mr. Paltzer, himself a Swiss-American dual citizenship holder, admitted at a hearing in federal court in Manhattan that he was aware that his conduct was against the U.S. Law, but he “nonetheless agreed with the U.S. taxpayers to help them commit these crimes”. Specifically, Mr. Paltzer created fraudulent U.S. tax forms for clients and corresponded with clients in code in order to maintain secrecy while transferring their undeclared funds to the U.S. from Switzerland.
Mr. Paltzer pleaded guilty to a single count of conspiracy on Friday, August 16, 2013. His agreement to cooperate with U.S. prosecutors may result in a shorter sentence than 5 years in prison, a verdict that might have been otherwise assigned.

Prosecutors in Manhattan had purported that Mr. Paltzer conspired with Stefan Buck, the former head of private banking at Bank Frey & Co. AG in Zurich, to help U.S. citizens and others evade tax liability by concealing money in offshore accounts. Mr. Buck has not answered the charge and has not appeared in court in the U.S. It should be noted that as of last year, about 44% of the Bank Frey & Co. AG’s $2.12 billion in assets originated from American taxpayers’ accounts.

Assistant U.S. Attorney Jason Cowley stated that Mr. Paltzer previously had access to the assets of U.S. taxpayers and had agreed not to access or allow others to access those vaults. An order was passed in court blocking all access to the aforementioned assets.

Niederer Kraft & Frey Ltd disclosed at the time of the indictment that Mr. Paltzer had handed his resignation. A few days later, the firm announced the resignation of Markus Frey, a partner who also established an institution called Bank Frey in 2000.

Bank Frey, incidentally, is one of many Swiss banks still awaiting agreement between Switzerland’s banking sector and the IRS over undeclared U.S. taxpayers’ accounts held in Swiss banks. Mr. Frey continues to function as the head of Bank Frey.

Although Swiss lawmakers rejected a broad information sharing proposal with the U.S. earlier in the year; last month, Swiss authorities disclosed a program that would permit around a dozen Swiss banks being investigated by the U.S. Department of Justice to divulge data on Swiss accounts that are held by Americans. However, the names of the U.S. Account holders will not be revealed.

As the United States began investigating UBS and other banks in 2008, Wegelin & Co., Switzerland’s oldest bank, seized the opportunity and actively sought U.S. clients. However, in January of this year, the bank pleaded guilty to a criminal conspiracy charge, becoming the first bank to plead guilty in the probe and has since terminated its operation. Three former bankers from Wegelin were also charged in the probe. Wegelin was ordered to pay $74 million to the U.S. in March as part of its plea.

In 2009, UBS also admitted to conspiring to defraud the U.S. government out of billions of dollars of tax income and entered a deferred-prosecution agreement. UBS divulged the names of over 4,000 American accountholder. The agreement cost UBS $780 million.

Vic Abajian, a former IRS tax attorney in Los Angeles, was not surprised with the cooperation provided by Mr. Paltzer and thinks it will soon end the opportunity for other account holders to make voluntary disclosures. Also keep in mind that Mr. Paltzer’s lawyer has publicly stated that his client’s cooperation will be “complete and without limitation”. Accordingly, there is a good chance that Mr. Paltzer will turn over his clients’ information to the U.S. government. Mr. Abajian stated that, “U.S. taxpayers should consider coming forward through a voluntary disclosure (2012 OVDP) to the IRS before their information is turned over; after that a voluntary disclosure is not possible and taxpayers will be in a position of negotiating a guilty plea to a felony with the assistant United States Attorneys in New York.” Mr. Abajian has extensively assisted clients with international tax reporting and filing issues since 2006. He is one of the leading FBAR tax attorneys.